Income and Wealth tax liability on second home

Hi,

I already own a house in Mumbai and am in the process of obtaining another in Pune (near to my workplace). The reason for getting a second home is twofold: I want a place of my own to be able to live comfortably in Pune and given the appreciation of property, it also serves as a suitable investment option. Thus, I'd like to know the Income and Wealth tax liability that comes with this purchase. Here are the relevant details:

Mumbai Home: Date of Purchase (Registration): Feb 2006 Agreement Value: Approx. Rs. 12 Lakhs Home Loan: 7 lakhs for 7 years Loan started: Feb 2006 Loan ended: Mar 2009 (foreclosed) Current Status: Not Occupied; possession not yet provided by the builder.

Pune Home: Date of Purchase (Registration): May 2012 (tentative) Agreement Value: Approx. Rs. 60 Lakhs Home Loan: 10 lakhs for 10 years (tentative) Loan started: N/A Loan ended: N/A Current Status: Property is ready for possession; will take over as soon as I clear the dues.

From what I've researched so far, the liabilities seem to be as follows (please confirm if these are correct):

Income Tax: 1. The "second" house is liable to be taxed as a rental property at the prevailing market rates (even if I may not decide to let it out on rent). 2. If I let it out on rent (which I'd prefer not), then I will be required to pay tax on the rental income. 3. I can claim tax exemption upto Rs. 1.5 Lakhs for the home loan (for Pune home).

Wealth Tax: 1. Given that the implementation of Direct Tax Code 2012 has been postponed (source: pankajbatra.com), the "second" house will incur a wealth tax of 1% if it's value is over 30 Lakhs. 2. If I let the "second" house on rent (for a minimum of 300 days), then I will not be liable for wealth tax. 3. If Pune is considered to be the "second" house, then the wealth tax liability will be on 60 - 30 (standard deduction) - 10 (Home Loan) = 20 Lakhs; 1% of which equates to Rs. 20,000/- per annum.

A few more specific questions: 1. Do I have the liberty to designate my Mumbai home as the "second" house ? Or will the Pune property will have to be considered the "second" house because it was purchased later ? 2. If Mumbai home can be considered the "second" house, will it's agreement value be considered for the wealth tax calculations ? Or will it's "current/market" value be considered ? If so, how do I calculate the same ?

Thanks.

asked May 10 '12 at 16:05 by jondav2006 1111


Income tax: If you are not taking any home loan benefit on second house (Mumbai), there is no need to show notional rent income if house is not given on rent. Just claim home loan interest benefit upto 1.5 lakh for Pune home, considering it as self-occupied.

Wealth tax: If your total eligible wealth is more than 30 lakh, you would need to pay 1% wealth tax on value above 30 lakh. As Mumbai house is not self occupied, it would be considered as second house.

Current market value of Mumbai house would be considered for wealth tax computation. Just look for government approved rates (also called as circle rate) on which minimum registration is being done as of now.

answered May 29 '12 at 23:25 by Pankaj Batra 5.2k320

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Asked: May 10 '12 at 16:05

Seen: 3,079 times

Last updated: May 29 '12 at 23:25